UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1997
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _____________
Commission File No. 34-22090
THE MULTICARE COMPANIES, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 22-3152527
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification #)
411 Hackensack Avenue
Hackensack, New Jersey 07601
Address of principal executive offices Zip Code
Registrant's telephone number, including area code (201) 488-8818
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 13, 1997
Common Stock ($.01 Par Value) 30,798,551
<PAGE>
THE MULTICARE COMPANIES, INC.
Index
Page
Special note regarding forward-looking statements 1
Part I.Financial Information
Consolidated Balance Sheets
December 31, 1996 and March 31, 1997 2
Consolidated Statements of Operations
Three months ended March 31, 1996 and 1997 3
Consolidated Statements of Cash Flows
Three months ended March 31, 1996 and 1997 4
Notes to Consolidated Financial Statements 5-6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
Part II. Other Information 9
Signatures 10
<PAGE>
THE MULTICARE COMPANIES, INC.
Special Note Regarding Forward-Looking Statements
Certain statements in this Form 10-Q, including information set forth under
"Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations", constitute "Forward-Looking Statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). The Multicare Companies, Inc. ("Multicare" or the "Company") desires
to take advantage of certain "safe harbor" provisions of the Reform Act and
is including this special note to enable the Company to do so. Although the
Company believes the assumptions accompanying such forward-looking statements
are reasonable, there can be no assurance that expected results will occur.
A significant variation between actual results and any of such assumptions
may cause actual results to differ materially from expectations. Reference
should be made to Multicare's Annual Report on Form 10-K for the year ended
December 31, 1996 for more specific information concerning such risks and
assumptions.
<PAGE> 1
<TABLE>
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
<CAPTION>
December 31, March 31,
1996 1997
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,150 4,398
Accounts receivable, net 102,234 104,838
Prepaid expenses and other current assets 14,586 20,677
Deferred taxes 3,833 3,494
Total current assets 121,803 133,407
Property, plant and equipment, net 443,019 440,017
Goodwill, net 157,298 159,201
Debt issuance costs, net 4,017 3,544
Other assets 35,530 38,571
$ 761,667 774,740
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 26,948 34,823
Accrued liabilities 54,707 52,881
Current portion of long-term debt 821 811
Total current liabilities 82,476 88,515
Long-term debt 428,347 416,559
Deferred taxes 42,909 42,643
Contingent stock purchase commitment --- 1,530
Stockholders' equity:
Preferred stock, par value $.01, 7,000,000
shares authorized, none issued ---
Common stock, par value $.01, 70,000,000
shares authorized; 30,133,535 and 30,781,459
issued and outstanding in 1996 and 1997,
respectively 301 308
Additional paid-in-capital 143,513 153,177
Retained earnings 64,121 72,008
Total stockholders' equity 207,935 225,493
$ 761,667 774,740
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 2
<TABLE>
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
<CAPTION>
Three months ended
March 31,
1996 1997
<S> <C> <C>
Net revenues $ 120,057 168,792
Expenses:
Operating expense 91,037 127,702
Corporate, general and administrative expense 6,155 8,190
Lease expense 2,733 4,151
Depreciation and amortization expense 4,654 6,870
Interest expense, net 5,463 7,184
Debenture conversion expense --- 785
Total expenses 110,042 154,882
Income before income taxes and
extraordinary item 10,015 13,910
Income tax expense 3,818 5,150
Income before extraordinary item 6,197 8,760
Extraordinary item - loss on extinguishment
of debt,net of tax benefit 1,481 873
Net income $ 4,716 7,887
Income per common and common
equivalent share data:
Income before extraordinary item $ .23 .28
Net income $ .18 .25
Weighing average number of common
and common equivalent shares outstanding 26,523 31,657
Income per common share assuming full dilution:
Income before extraordinary item $ .23 .27
Net income $ .18 .24
Weighted average number of common shares
outstanding assuming full dilution 26,523 36,111
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
<TABLE>
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<CAPTION>
Three months ended
March 31,
1996 1997
<S> <C> <C>
Cash flows from operating activities:
Net cash (used in) provided by operating
activities $ (2,434) 12,654
Cash flows from investing activities:
Net marketable securities sold 158 ---
Assets and operations acquired (121,281) (2,890)
Capital expenditures (15,916) (15,220)
Proceeds from repayment of construction
advances --- 13,100
Other assets 2,781 (3,258)
Net cash used in investing activities (134,258) (8,268)
Cash flows from financing activities:
Proceeds from exercise of stock options and
stock purchase plan 29 201
Proceeds from long-term debt 164,800 53,600
Payments of long-term debt (26,987) (54,773)
Debt issuance costs (1,850) (166)
Other (82) ---
Net cash provided by (used in)
financing activities 135,910 (1,138)
(Decrease) increase in cash and cash
equivalents (782) 3,248
Cash and cash equivalents at beginning of
period 3,921 1,150
Cash and cash equivalents at end of period $ 3,139 4,398
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
THE MULTICARE COMPANIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1997
(Unaudited)
(In thousands, except share and per share data)
(1) Organization and Basis of Presentation
The Multicare Companies, Inc. and Subsidiaries ("Multicare" or the
"Company") own, operate and manage skilled nursing facilities which
provide long-term care and specialty medical services in selected
geographic regions within the eastern and midwestern United States. In
addition, the Company operates assisted-living facilities, institutional
pharmacies, medical supply companies, outpatient rehabilitation centers
and other ancillary healthcare businesses.
The financial information as of March 31, 1997 and for the three months
ended March 31, 1996 and 1997, is unaudited and has been prepared in
conformity with the accounting principles and practices as reflected in
the Company's audited annual financial statements. The unaudited
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial
position as of March 31, 1997 and the operating results and cash flows
for the three months ended March 31, 1996 and 1997. Results for interim
periods are not necessarily indicative of those to be expected for the
year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these consolidated financial statements be read in conjunction with
the consolidated financial statements and notes thereto incorporated in
the Company's Annual Report on Form 10-K for the year ended December 31,
1996.
(2) Commitments and Contingencies
There are numerous legislative and executive initiatives at the federal
and state levels for comprehensive reforms affecting the payment for and
availability of healthcare services, including without limitation
discussions at the federal level concerning budget reductions and the
implementation of prospective payment systems for the Medicare and
Medicaid programs. The Company is unable to predict the impact of
healthcare reform proposals on the Company; however, it is possible that
such proposals could have a material adverse effect on the Company. Any
changes in reimbursement levels under Medicaid and Medicare and any
changes in applicable government regulations could significantly affect
the profitability of the Company. Various cost containment measures
adopted by governmental pay sources have begun to limit the scope and
amount of reimbursable healthcare expenses. Additional measures,
including measures that have already been proposed in states in which
the Company operates, may be adopted in the future as federal and state
governments attempt to control escalating healthcare costs. There can
be no assurance that currently proposed or future healthcare legislation
or other changes in the administration or interpretation of governmental
healthcare programs will not have a material adverse effect on the
Company. In particular, changes to the Medicare reimbursement program
that have been proposed could materially adversely affect the Company's
revenues derived from ancillary services.
The Company is from time to time subject to claims and suits arising in
the ordinary course of business. In the opinion of management, the
ultimate resolution of pending legal proceedings will not have a
material effect on the Company's consolidated financial statements.
<PAGE> 5
(3) Financing Obligations
In January 1997 the Company purchased $6,500 of its 12.5% Senior
Subordinated Notes resulting in an extraordinary charge after tax of
$873 for premiums paid above the recorded values and the write-off of
debt issuance costs and original issue discounts. In addition, in
January 1997 $11,000 of the Company's 7% Convertible Debentures were
converted into common stock and convertible debenture expense of $785
was recorded relating to premiums paid upon conversion.
(4) Capital Stock and Net Income Per Share
In May 1996, the Company effected a three-for two stock split in the
form of a 50% stock dividend. All references to average number of
shares outstanding and per share amounts have been restated to reflect
the stock split. The computation of primary earnings per share is based
on the weighted average number of outstanding shares during the period
and includes when their effect is dilutive, common stock equivalents
consisting of certain shares subject to stock options. Fully diluted
earning per share additionally assumes the conversion of the Company's
Convertible Subordinated Debentures.
Net income used in the computation of fully diluted earnings per share
was determined on the assumption that the convertible debentures were
converted and net income was adjusted for the amounts representing
interest and amortization of debt issuance costs, net of tax effect.
In February 1997 the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," ("FASB 128") which is required
to be adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per
share and to restate all prior periods. The impact of FASB 128 on the
calculation of earnings per share amounts is not expected to be
material.
In March 1997 the Company issued put option on 87,400 shares of its
common stock. As of March 31, 1997 the balance in the contingent stock
purchase commitment is the amount the Company would have been obligated
to pay if the put options were exercised.
(5) Acquisitions
In February 1996, the Company completed the acquisition of Concord
Health Group, Inc. (Concord). The Company acquired the outstanding
capital stock and warrants of Concord for approximately $75,000
including transaction costs, repaid approximately $41,000 of debt, and
assumed historical debt of approximately $4,000. Total goodwill
approximated $61,000.
In December 1996, the Company completed the acquisition of The ADS
Group (ADS). The Company paid approximately $10,000, repaid or assumed
approximately $29,800 in debt, financed $51,000 through a lease
facility, and issued 554,973 shares of its common stock for ADS. Total
goodwill approximated $29,900.
The following unaudited pro forma financial information gives effect to
the acquisitions of Concord and ADS as if such transactions occurred on
January 1, 1996:
<TABLE>
Pro forma
Three months ended
March 31, 1996
<S> <C>
Net revenues $ 142,214
Income before extraordinary item 6,774
Net income 5,293
Income before extraordinary item per common and
common equivalent share assuming full dilution .25
Net income per common and common
equivalent share assuming full dilution .20
</TABLE>
<PAGE> 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company has experienced significant growth, primarily through
acquisitions of long-term care facilities and ancillary businesses and
increased utilization of specialty medical services. It is the Company's
strategy to expand through construction and development of new facilities and
selective acquisitions with geographically concentrated operations.
Summarized below are the recent significant acquisitions completed in 1996:
-In February 1996, the Company acquired the outstanding capital
stock of Concord Health Group, Inc., a long-term care provider
through 15 long-term care facilities with approximately 2,600 beds
and ancillary businesses in Pennsylvania.
-In December 1996, the Company acquired The ADS Group, which owns,
operates or manages over 50 long-term care and assisted-living
facilities with over 4,200 licensed beds, principally in
Massachusetts.
Results of Operations
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31,
1996
Net Revenues. Net revenues for the first quarter ended March 31, 1997
increased 41% or $48.7 million to $168.8 million. Of the net revenues
increase, 28% is primarily attributable to the inclusion of results for the
Company's recent acquisitions. The internal growth rate of revenues amounted
to 13% in the first quarter of 1997, resulting mainly from increases in payor
rates and changes in census mix, development and opening of additional beds,
and growth in specialty medical service revenue. Specialty medical services
revenues which include institutional pharmacy, subacute care, rehabilitative
therapies and medical supplies increased 41% or $18.8 million to $64.1
million in the first quarter of 1997. The Company's quality mix of private,
Medicare and insurance revenues was 67% of revenues for the three months
ended March 31, 1997 compared to 64% in the similar period of 1996.
Occupancy rates were 90% for the three months ended March 31, 1997 compared
to 92% in the similar period of 1996.
Operating Expense and Margins. Operating expenses increased to $127.7
million for the three months ended March 31, 1997 from $91.0 million for the
comparable period in 1996, an increase of $36.7 million or 40%. Salaries,
wages and benefits increased to $80.8 million for the three months ended
March 31, 1997 from $60.0 million for the comparable period in 1996, an
increase of $20.8 million or 35%. Of this increase, $13.9 million was due to
the acquisitions previously described. The remainder of the increase was due
to the expanded utilization of salaried therapists and nursing staffing
levels to support higher usage of specialty medical services, in addition to
cost of living increases. Other operating expenses increased to $46.9
million for the three months ended March 31, 1997 from $31.0 million for the
comparable period in 1996, an increase of $15.9 million or 51%. Other
operating expenses include independent contractor fees for therapy, dietary
supplies and food, utilities, facility maintenance and housekeeping. The
increase in these expenses was due principally to the inclusion of results
for the recent acquisitions.
Operating margins before interest and debenture conversion expense remained
consistent at 13% of net revenues for the three months ended March 31, 1997
and 1996. Income before interest, taxes, depreciation, amortization and lease
expense (EBITDAR) also remained consistent at 19% of net revenues for the
three months ended March 31, 1997 and 1996.
Corporate, General and Administrative Expense. Corporate, general and
administrative expense remained consistent at approximately 5% of net
revenues for the three months ended March 31, 1996 and 1997. The expenses
include resources devoted to operations, finance, accounting, and information
systems in order to support the new acquisitions and for present and planned
growth.
Lease Expense. Lease expense increased to $4.2 million in the first quarter
of 1997 from $2.7 million in the same period of 1996, an increase of $1.5
million. The increase was primarily due to the inclusion of lease expense
relating to a recent acquisition.
<PAGE> 7
Depreciation and Amortization Expense. Depreciation and amortization
increased to $6.9 million in the first quarter of 1997 from $4.7 million in
the same period of 1996, an increase of $2.2 million. The increase was
primarily due to the inclusion of depreciation and amortization for the
recent acquisitions.
Interest Expense, net. Interest expense for the first quarter of 1997
increased 32% or $1.7 million to $7.2 million, primarily as a result of
increased borrowings under the Company's various credit agreements in
connection with the financing of recent acquisitions.
Debenture Conversion Expense. Debenture conversion expense for the first
quarter of 1997 relates to the premium paid in January 1997 to convert $11
million of convertible debentures into common stock.
Liquidity and Capital Resources
The Company maintains that working capital from operating cash flows and
lines of credit are adequate for continuing operations, debt payments, and
anticipated capital expenditures. At March 31, 1997, the Company had working
capital of $44.9 million, compared to $39.3 million at December 31, 1996.
In January 1997 the Company purchased $6.5 million of its 12.5% Senior
Subordinated Notes resulting in annual interest savings of over $.4 million
based on the Company's incremental borrowing rate under existing credit
lines. In addition, in January 1997 $11 million of the Company's Convertible
Debentures were converted into common stock.
Cash flow from operations was $12.7 million for the three months ended March
31, 1997 compared to cash used in operations of $2.4 million in the
comparable period of 1996. The increase in operating cash flow is due, in
part, to improved collection of accounts receivable. Net accounts receivable
were $104.8 million at March 31, 1997 compared to $102.2 million at December
31, 1996. The increase in net accounts receivable is attributable to the
recent acquisitions, the utilization of specialty medical services for higher
acuity level patients, and the timing of third-party interim and settlement
payments. The allowance for doubtful accounts represents approximately 10%
of gross accounts receivable at March 31, 1997 and December 31, 1996.
Legislative and regulatory action and government budgetary constraints could
change the timing of payments and reimbursement rates of the Medicare and
Medicaid programs in the future. These changes could have a material adverse
effect on the Company's future operating results and cash flows.
There are numerous legislative and executive initiatives at the federal and
state levels for comprehensive reforms affecting the payment for and
availability of healthcare services, including without limitation discussions
at the federal level concerning budget reductions and the implementation of
prospective payment systems for the Medicare and Medicaid programs. The
Company is unable to predict the impact of healthcare reform proposals on the
Company; however, it is possible that such proposals could have a material
adverse effect on the Company. Any changes in reimbursement levels under
Medicaid and Medicare and any changes in applicable government regulations
could significantly affect the profitability of the Company. Various cost
containment measures adopted by governmental pay sources have begun to limit
the scope and amount of reimbursable healthcare expenses. Additional
measures, including measures that have already been proposed in states in
which the Company operates, may be adopted in the future as federal and state
governments attempt to control escalating healthcare costs. There can be no
assurance that currently proposed or future healthcare legislation or other
changes in the administration or interpretation of governmental healthcare
programs will not have a material adverse effect on the Company. In
particular, changes to the Medicare reimbursement program that have been
proposed could materially adversely affect the Company's revenues derived
from ancillary services.
The Company plans to continue its growth oriented strategy for the
foreseeable future. The Company anticipates using operating cash flows, bank
credit facilities, leasing arrangements, and the sale of additional debt or
equity securities to finance its growth. The Company anticipates its capital
requirements for the construction of new facilities and the expansion and
renovation of existing facilities to approximate $60 million over the next
twelve months based on existing construction commitments and plans.
<PAGE> 8
Part II-Other Information
Item 6. (a) Exhibits.
Exhibit No.
11 Statement re computation of earnings per share
27 Financial Data Schedule
(b) None.
<PAGE> 9
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
The Multicare Companies, Inc.
\S\ STEPHEN R. BAKER
By: STEPHEN R. BAKER
Stephen R. Baker
Executive Vice President
and Chief Financial Officer
May 14, 1997
<PAGE> 10
EXHIBIT 11
<TABLE>
The Multicare Companies, Inc.
Computation of earnings per share
March 31, 1997
(Unaudited)
(in thousands, except per share data)
<CAPTION>
Three months ended
March 31, 1997
<S> <C>
Income per common and common equivalent share:
Income before extraordinary item $ 8,760
Net Income $ 7,887
Weighted average number of common and common
equivalent shares outstanding 31,657
Income before extraordinary item per common
and common equivalent share $ .28
Net income per common and common equivalent share $ .25
Income per common and common equivalent share assuming
full dilution:
Income before extraordinary item $ 8,760
Net income $ 7,887
Adjustments to income:
Interest expense and amortization of debt issuance
costs relating to convertible debt, net of tax $ 876
Adjusted net income $ 8,763
Weighted average number of common and common
equivalent shares outstanding 31,657
Convertible debt shares 4,454
Adjusted shares 36,111
Income before extraordinary item per common share
assuming full dilution $ .27
Net income per common share assuming full dilution $ .24
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MULTICARE
COMPANIES, INC. FORM 10-Q QUARTERLY REPORT FOR THE THREE-MONTH PERIOD ENDED
MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,398
<SECURITIES> 0
<RECEIVABLES> 104,838
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 133,407
<PP&E> 440,017
<DEPRECIATION> 0
<TOTAL-ASSETS> 774,740
<CURRENT-LIABILITIES> 88,515
<BONDS> 416,559
0
0
<COMMON> 308
<OTHER-SE> 225,185
<TOTAL-LIABILITY-AND-EQUITY> 774,740
<SALES> 0
<TOTAL-REVENUES> 168,792
<CGS> 0
<TOTAL-COSTS> 127,702
<OTHER-EXPENSES> 6,870
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,184
<INCOME-PRETAX> 13,910
<INCOME-TAX> 5,150
<INCOME-CONTINUING> 8,760
<DISCONTINUED> 0
<EXTRAORDINARY> 873
<CHANGES> 0
<NET-INCOME> 7,887
<EPS-PRIMARY> .25
<EPS-DILUTED> .24
</TABLE>
